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I've been trading sim and so I just need to double check an assumption.. sorry for stupid question.
1) buy market then sell market = pay the spread
2) limit long then sell the market out = no spread
3) (one I'm not sure of) limit long then limit out too = positive spread??
Thanks
Can you help answer these questions from other members on NexusFi?
By no means a stupid question... we're all beginners at some time.
Think of it this way... anytime you BUY, you are buying at the ASK price. Anytime you SELL, you are selling at the BID price. Depending on the instrument/liquidity/volatility, the spread between the BID and ASK could be 1 tick or several ticks. Having said that, it would be virtually impossible to place simultaneous trades and show P/L in terms of spread as you phrased it.
The 3 basic order types are MARKET, LIMIT, and STOP.
If you BUY MARKET, then you are agreeing to buy at whatever the ASK price is when you submit that order. If you SELL MARKET, you are selling at whatever the BID price is when you submit the order.
If you BUY LIMIT, you are placing your order to buy BELOW the current price. If price comes down to (or through) your order level, it will get filled. If you BUY STOP, your order is placed ABOVE the current price level. If price trades up to/through your order, it will get filled. For SELL orders, the opposite is true (of course, all of this subject to slippage, order quantity, priority, etc).
IMO the 3 scenarios above do not seem to take into account the most important factor, i.e. : it all depends on what the market does between when you enter and when you exit the trade.
1) if you use a market order to enter a trade then close out the trade with a market order you pay the spread once. Assuming, in the example above, that the market is not going to move at all between when you enter and when you exit then yes. In the above example you lose one tick + commissions
2) if you use a limit order to enter a trade then a market order to leave the trade you don't pay the spread. For the sake of simplicity, in order 'not to pay the spread' you would need to place a limit order at 1933.50, hope it gets filled, and then hope the price goes back to the situation in the picture. In that case you would not pay the spread. You would still pay commissions.
3) if you use limit orders to enter and leave the trade you technically make the spread??? Again using above example if you use a buy limit at 1933.50 and a sell limit at 1933.75, assuming you're lucky and you get filled on both right away then you've made the spread (minus commissions)
Limit orders only pair with market orders. Buy limits stack up at each price below and at the current market, the best bid and then all the rest below it. Sell limits stack up at each price above and at the current market, the best ask (or also called …
Ron
...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
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